The Work Opportunity Tax Credit Program: Facts and How to Apply

Discover how the Work Opportunity Tax Credit (WOTC) provides employers with tax savings for hiring qualified candidates from designated target groups.

Reviewed by Paylocity's Compliance & Government Relations Team

Tax Resource

April 30, 2025

What is WOTC?

The Work Opportunity Tax Credit (WOTC) is a federal tax incentive that encourages employers to hire workers from certain “target groups” that have historically struggled to find employment, such as veterans, long-term unemployed individuals, and those receiving public assistance.

Created by the 1996 Small Business Job Protection Act, WOTCs help reduce an employer’s hiring costs by covering a portion of the wages paid to eligible employees. The program's intent isn’t to stimulate new job growth but to incentivize hiring qualified, historically overlooked candidates.

To claim this federal tax credit, the employee(s) must be certified by a designated state workforce agency (SWA) as part of a targeted group and work 400 or more hours for their employer in their first year.

If approved, for-profit employers may apply this work opportunity tax credit to their income tax liabilities. Certain tax-exempt or non-profit employers, on the other hand, may use the credit against payroll taxes on the wages paid to eligible employees.

Key Takeaways

The Work Opportunity Tax Credit (WOTC) helps reduce hiring costs by offering tax credits for hiring individuals from historically underserved groups.
Target groups of potentially WOTC-eligible candidates include veterans, long-term unemployment or supplemental security income recipients, youth summer workers, and former felons.
To claim the credit, employers must screen eligible hires, submit their information to an SWA for eligibility approval, track work hours and paid wages to meet credit thresholds, and submit IRS Form 5884 with their standard tax returns.

WOTC Program Limitations

Employers can typically claim a workplace tax credit equal to 40% of a qualified employee’s wages, up to $6,000 — resulting in a maximum credit of $2,400 per employee. However, amendments to the program later expanded this benefit for certain members of the qualified veteran target group, allowing employers to claim up to $9,600 (40% of up to $24,000 in wages).

Furthermore, if an employee has only worked between 120 and 399 hours for the employer, the credit is reduced to 25% of their wages.

Finally, only newly hired employees qualify for the WOTC, meaning employers cannot claim this workplace tax credit for rehired workers. Yet, there's no limit to the number of eligible employees an employer may hire, and therefore no cap on work opportunity tax credits employers may claim.

Since its adoption, the Work Opportunity Tax Credit program has been extended several times but is scheduled to end on December 31, 2025.

As of April 2025, two active bills, one in the U.S. House of Representatives (H.R. 1177) and one in the Senate (S. 492), are focused on improving and continuing this program beyond its current end date.

In the meantime, refer to our tax alerts page for any WOTC legislative updates.

Work Opportunity Tax Credit Program Requirements

Work opportunity credit requirements are designed to support individuals from specific target groups. Therefore, when an employee is hired, employers must submit the correct work and tax credit certification to verify compliance.

What Employees Qualify for WOTC?

There are ten WOTC target groups, each with distinct characteristics and requirements.

WOTC Target Group	Group Details
IV-A Recipients	Members of families receiving Temporary Assistance for Needy Families (TANF) under Title IV-A of the Social Security Act. To qualify, the family must have received assistance for at least nine months during an 18-month period ending on the hire date.
Veterans	Former members of the U.S. military who meet specific conditions, such as being part of a SNAP-recipient family, being unemployed for at least 4 weeks, or having a service-connected disability. Additional qualifications apply based on recent discharge status and extended unemployment history.
Ex-Felons	Candidates who were convicted of a felony or released from prison for a felony within one year before their hire date.
Designated Community Residents (DCRs)	Individuals aged 18 to 39 who live in federally designated Empowerment Zones (EZs) or Rural Renewal Counties (RRCs) at the time of hire. The individual must maintain their principal residence in that area while employed.
Vocational Rehabilitation Referrals	Candidates with a physical or mental disability referred by a state-approved vocational rehabilitation program, the Ticket to Work program, or the Department of Veterans Affairs. The referral may occur during or after participation in the rehabilitation services.
Summer Youth Employees	16 or 17-year-old workers who reside in an EZ and are hired for seasonal work between May 1 and September 15. These employees must not have worked for the employer before May 1 of the hiring year.
Supplemental Nutrition Assistance Program (SNAP) Recipients	Individuals aged 18 to 39 whose families received SNAP benefits for the last six months or at least three of the previous five months before hiring.
Supplemental Security Income (SSI) Recipients	Individuals who have received SSI benefits for any month within a 60-day period ending on the hire date.
Long-Term Family Assistance Recipients	Candidates who are part of a family that has received TANF assistance for at least 18 consecutive months (or a total of 18 months after August 5, 1997) or who became ineligible due to time limits within the last two years.
Long-Term Unemployment Recipients (LTUR)	Individuals who have been unemployed for 27 consecutive weeks or more before this hiring and received unemployment compensation for all or part of that period.

What is a Work Opportunity Tax Credit Form?

To successfully claim a WOTC, employers must complete and submit various forms to their designated SWA when hiring a WOTC-eligible candidate and filing their tax returns.

WOTC Form	WOTC Phase	WOTC Form Details
IRS Form 8850	WOTC Screening	A work opportunity tax credit pre-screening notice employers and the candidate must complete on or before the day a job offer is made and submit to the SWA within 28 days of the new hire’s start date. The first page, sometimes called the WOTC questionnaire or WOTC survey, collects background information from the candidate to help determine which target group they belong to. The second page collects the employer’s background information and four key dates: When the candidate gave information that could classify them as a target group member, when the candidate was offered the job, when the candidate was hired, and when the candidate started the job.
ETA Form 9061		The Individual Characteristics Form collects additional candidate details (e.g., age, disability, veteran status, etc.) to help further determine which (if any) target group they belong to.
ETA Form 9062		The Conditional Certification Form is an alternative form candidates can provide instead of ETA Form 9061 if the designated SWA has pre-certified them as WOTC-eligible.
ETA Form 9175		Candidates belonging to the LTUR target group must complete this self-attestation form to further verify their group eligibility and provide the finished version to their new employer.
IRS Form 5884*	WOTC Claims	The Work Opportunity Credit form, which employers use to calculate how much WOTC they can claim based on the qualified wages paid to WOTC-eligible employees.
IRS Form 3800	WOTC Claims	The General Business Credit form consolidates various business-related tax credits, including the WOTC amount from Form 5884, into a single employer tax credit organizations claim on their tax returns.

*Tax-exempt, 501(c) organizations should use Form 5884-C instead.

How to Apply For and Claim Work Opportunity Tax Credits

With a firm understanding of the credit’s requirements and necessary forms, the WOTC assessment and claims processes are fairly straightforward.

Pre-Screening: After familiarizing themselves with the requisite WOTC forms, employers can consult their designated SWA or organizations like the American Job Centers to find potential job applicants who may be members of a WOTC target group.
- While it’s not required, employers can also submit an ETA Form 9198 to formally identify and declare their authorized SWA representative
Tax Credit Screening: During the job offer process, employers and new hires prepare WOTC Form 8850 and an ETA 9061 form, unless the new hire is pre-certified as WOTC-eligible by the designated SWA. In that case, the candidate must provide an ETA 9062 form instead of the 9061 work opportunity tax credit questionnaire. Note, if the new hire is a member of the LTUR target group, they must also provide a completed ETA 9175 form.
- Employers must submit this completed paperwork to their designated SWA within 28 days of the new hire’s start date.
Performance Tracking: If the designated SWA approves the submitted tax credit assessment, employers should carefully record and track the WOTC-eligible employee’s work hours and wages to meet WOTC requirements.
Claim Credit: When filing their tax returns, employers must use a 5884 form (or 5884-C if they’re tax-exempt) to calculate how much of a WOTC they can claim. The calculated total is then used to complete Form 3800, and both forms are submitted with the employer’s returns.
Recordkeeping: Employers should retain and store copies of all WOTC paperwork and payroll data for compliance verification and potential future audits.

Simplify Tax Credit Savings with Paylocity

Claiming a work opportunity tax credit can deliver significant savings for employers — but the paperwork can be a hassle. Don’t let the administrative burden hold you back from cashing in on this opportunity!

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